Benchmark Software Giant Disappoints Wall Street

Benchmark Software Giant Disappoints Wall StreetWall Street keeps a close eye on Oracle Corporation (ORCL).

It’s a benchmark in part because the company has high institutional ownership. Larry Ellison, the company’s CEO, is its largest shareholder.

For the previous quarter (fiscal third quarter of 2013) the company’s earnings came in just slightly below expectations. Wall Street was mildly disappointed, but institutional investors believe in Ellison for the long term and the position sold off only marginally.

Oracle is still very much a good long-term holding for such a mature technology company. The company spends a lot of money on marketing, as well as research and development.

Oracle is the world’s largest provider of enterprise software. The company is organized into three main selling units: software (about 77% of revenues), hardware systems (13%), and services (10%).

It’s an active acquirer of other technology companies.

Just over half of the company’s business is generated in the Americas; Europe, the Middle East, and Africa (EMEA) account for about one-third; and the rest of Oracle’s business comes from the Asia-Pacific region, primarily Japan.

Any large-cap mature global corporation is going to have a tough time generating double-digit growth. Oracle’s long-term performance on the stock market is solid, but its latest quarter disappointed Wall Street again. The doubling of its quarterly dividends was notable.

Oracle Corporation Chart

Chart courtesy of

Oracle just announced its 2013 fiscal fourth-quarter numbers; the company’s earnings results met consensus, but revenues came up short.

According to Oracle, its fiscal 2013 fourth-quarter generally accepted accounting principles (GAAP) revenues were unchanged at $10.9 billion. GAAP operating income was up nine percent, and the company’s GAAP operating margin was 46%.

GAAP earnings grew 10%, while non-GAAP earnings were down one percent. GAAP earnings per share were up 17% to $0.80, while non-GAAP earnings per share grew five percent to $0.87 (which was the Wall Street consensus).

The doubling of the quarterly dividend was clearly meant to assuage the marketplace after flat revenues.

The company plans to move its listing to the New York Stock Exchange on July 15.

Last quarter saw a six-percent increase in software license updates and product support (in U.S. dollars) to $4.4 billion, or about 40% of total revenues.

Compared to the same quarter last year, the company’s fiscal fourth-quarter earnings increased 10% in U.S. dollars and 12% in constant currency. Cash and marketable securities grew only slightly over the comparable quarter.

Oracle is very much a company that offers good potential over the long-term, as the stock is not expensive considering its earnings growth. But the lack of top-line growth is a problem as it’s exactly what the stock market was looking for after fiscal third-quarter revenues.

Near-term, I’d say this position will be stuck at or below $30.00 a share for a while.

Sales of new software and Internet-based subscriptions disappointed again, which means that competition and weakness abroad must be having a meaningful impact. The company’s form 10-Q will be revealing.

The company missed consensus revenues only by about $220 million, but the marketplace was giving Oracle the most recent quarter to shore up on sales execution. The company was unable to do this.